GrainCorp deserves a spotlight, JPMorgan says

JPMorgan has urged hedge funds to take another look at
GrainCorp
, saying its takeover is likely to receive regulatory approval and suitor
Archer Daniels Midland
is unlikely to walk away.

GrainCorp shares have traded at about $12.50 in recent weeks, well below ADM’s offer of $12.20 a share plus a $1 special dividend.

Key to the timing and the deal’s completion are Foreign Investment Review Board and Chinese regulatory approval, which is expected to take some months. The bid got the ACCC’s nod yesterday.

GrainCorp shareholders have been offered a a fully franked 3.5¢ a share dividend for each full month after October 2013 that the deal is not completed.

JPMorgan told clients ADM’s offer was worth $13.40 including franking, assuming a January 2014 completion date. It believes FIRB and MOFCOM approval will be granted, although MOFCOM approvals typically take 10 to 11 months.

It’s understood approval processes have already begun.

The broker said hedge funds could make a 38 per cent internal rate of return should the deal complete in October 2013, and 21 per cent should it be done in January.

“We believe the risk of ADM walking away from the deal is low given ADM had US$6.3 billion [$6.8 billion] of available global credit capacity at the end of March," JPMorgan told clients.

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“Adding in US$1.6 billion of cash balances gives US$8 billion of available liquidity at the end of the quarter. Working capital could be a source of additional funds by the time the deal closes, depending on the size of the US harvest."

It said GrainCorp would cost ADM $2.2 billion for the 80.2 per cent of the company it did not already own.